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Blog Category: Legal

Starting a Business Risks

  By definition, an entrepreneur is a person who is willing to take risks in lieu of a profit. Therefore, acknowledging and embracing risk is a fundamental aspect of starting a new business. There will always be a certain level of uncertainty that you will have to prepare for and deal with when you work on establishing a startup business. Anticipating Failure The temptation is to ignore these risks and move forward with a false sense of security mingled with irrational ambition. Such an approach will lead to inevitable failure. Once you enter the world of business, you put your name in an intense competition that will either get the

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1. Not making the deal clear with co-founders You absolutely have to agree with your co-founders early on what the deal is among you. Not doing so can cause enormous problems later (see, for example, the Zuckerberg/Winklevoss Facebook litigation). In a way, think of the founder agreement as a form of “pre-nuptial agreement.” Here are the key deal terms you need to address in some kind of written founder agreement: Who gets what percentage of the company? Is the percentage ownership subject to vesting based on continued participation in the business? What are the roles and responsibilities of the founders? If one founder leaves, does the company or the other

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Jennifer Berrent, a partner at the New York office of legal firm WilmerHale, says the three most common mistakes ‘treps make in the early stages are failing to adequately protect their intellectual property (IP), not formalizing the equity arrangements among founders and inaction or haste in choosing the right structure for their business. Berrent held court on how to avoid common pitfalls. How can entrepreneurs protect their IP early on? Before you form an entity, people are chatting; they might be at their current job, maybe they spend a couple of hours collaborating. And there’s a question when you are going to develop a business around that: Who owns that

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1. Watch Out for Your Advice When I first started speaking professionally and coaching individuals, I never thought that I needed special insurance. It is rare, but I have seen some people take advantage of well-intended “advice” by claiming it destroyed their life and then suing the communicator. If you are in the business of providing advice, look into getting some liability insurance. 2. Consider Vesting Your Equity Over Time It is extremely difficult to find the right co-founders for your business. You need to have a similar work ethic and timeline for the investment, your chemistry has to match, and you have to make sound decisions for the company.

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